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On Wall Street on Wednesday, the Dow Jones industrial average closed down 519 points, with selling largely spurred by worries about Europe. American bank stocks took hits because investors fretted that debt problems overseas might reach the United States.

France came under pressure amid concerns that it could follow the U.S. and become the next country to lose its top AAA rating. Standard & Poor's rating agency stripped the U.S. of its AAA credit rating late last week, sending global stocks into a tailspin.

The downgrade of U.S. debt is fueling worries that France could be next to lose the rare top rating if it contributes to further bailouts of eurozone countries.

On Tuesday, the Federal Reserve said it planned to keep interest rates ultra-low for two more years since it sees almost no chance that the U.S. economy will improve substantially by 2013.

The Dow closed Wednesday at 10,719.94, down 4.6 percent for the day. By points, it was the ninth-steepest decline for the market. The S&P 500 finished the day down 4.4 percent and the Nasdaq composite index down 4.1 percent.

In Asia, a key concern is that higher inflation in China could lead to slower growth.
Inflation in the world's second-largest economy rose to a 37-month high in July, adding to pressure on Chinese leaders to cool living costs while keeping economic growth on track as the U.S. and European outlook worsens.

Some analysts said upcoming jobs and retail sales data from the U.S. later this week would offer a much needed respite from plummeting markets. Weekly jobless claims will be released later Thursday, followed by retail sales Friday.

"Perhaps some actual data might calm things down? Jobless claims are on tap today and a good number ... would surely offer a bit of respite to markets," analysts at DBS Bank Ltd. in Singapore said in a report. Retail sales, coming on the heels of a recent surge in auto sales, would be even "more likely to have a calming effect," the report said.
In currencies, the dollar weakened to 76.64 yen from 76.83 yen late Wednesday in New York. The euro rose to $1.4230 from $1.4208
http://finance.yahoo.com/news/Asi...fter-Wall-apf-2188808570.html?x=0

Reuters has just broken news that at least one bank in Asia, and five other in process, has cut credit lines to major French lenders "as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday."

Why is this worrying?

Because as is by now well-known, the PBoC has been as aggressive a buyer in the primary market of European market as most European banks, which as is well-known immediately turn and pledge said debt as collateral to the ECB for 100 cents on the euro,

and the fact that its proxies are now quietly withdrawing from the European market as lenders of last resort, is probably far worse news than a rumor that the S&P may cut France.

“Stimulus demand from the U.S. and China has played a critical role,” said Lai, referring to the recovery that began in the second quarter of 2009.
“As this demand had started to wane, a reversal of this process now seems inevitable.”

Asia's quick-growing economies have reduced capacity for policy stimulus in the event of another global crisis given the region is running a risk of overheating, World Bank President Robert Zoellick told reporters Tuesday.

Slowing global growth and a wave of volatility on global markets in the aftermath of the U.S. credit rating downgrade and as Europe's debt crisis continues prompted a raft of global policy makers to call for a coordinated approach to restore confidence.

But unlike after the 2008 financial crisis, when massive stimulus from China and others in Asia propelled the world economy, quickening inflation and still strong growth means governments have less flexibility this time round.

"I don't think you can expect the role that they played with big stimulus programs, particularly in China," Zoellick said in a joint press conference with Australia Treasurer Wayne Swan.